India is the 7th largest and 2nd most populous country in the world. It is also the 4th largest economy in the world in terms of PPP. A series of ambitious economic reforms aimed at deregulating the economy and stimulating foreign investment has moved India firmly into the front runners of the rapidly growing Asia Pacific Region and unleashed the latent strength of a complex and rapidly changing nation. Today India is one of the most exciting emerging markets in the world. Skilled managerial and technical manpower that matches the best available in the world and a middle class whose size exceeds the population of the USA or the European Union, provide India with a distinct cutting edge in global competition. India’s time tested institutions offer foreign investors a transparent environment that guarantees the security of their long term investments. These include a free and vibrant press, a well established judiciary, a sophisticated legal and accounting system and a user friendly intellectual infrastructure. India’s dynamic and highly competitive private sector has long been the backbone of its economic activity and offers considerable scope for foreign direct investment, joint ventures and collaborations.

Industrial Sector was among the first sectors to be liberalized in India in a series of measures. Industrial licensing has been abolished except in a small number of sectors where it has been retained on strategic considerations.

The Government’s liberalization and economic reforms programme was initiated in July 1991, under the new Industrial Policy Resolution. The industrial policy reforms have substantially reduced the industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment.

Foreign Direct Investment in India is allowed on automatic route in almost all sectors except Proposals that require an industrial licence and cases where foreign investment is more than 24% in the equity capital of units manufacturing items reserved for the small scale industries. Proposals in which the foreign collaborator has a previous venture/tie-up in India. Proposals relating to acquisition of shares in an existing Indian company in favour of a Foreign/Non-Resident Indian (NRI)/Overseas Corporate Body (OCB) investor; and Proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted and/or whenever any investor chooses to make an application to the Foreign Investment Promotion Board and not to avail of the automatic route.

Foreign Investment Promotion Board (FIPB) is a competent body to consider and recommend foreign direct investment (FDI), which do not come under the automatic route. With the shifting of the FIPB to the Department of Economic Affairs, Ministry of Finance, the FIPB has been reconstituted as under:

Foreign nationals (except citizens of Nepal and Bhutan) entering into India are required to carry a valid passport/travel documents and a valid visa. Visas for the purpose of tourism, entry, transit, conferences, business and employment in India re issued to foreign nationals by Indian Embassies and Consulates abroad.

Business visas may be issued for upto 5 years, with multiple entry provision. While a business visa is issued by an Indian Embassy abroad, it can be renewed/extended within India if the applicant so desires. Foreign nationals who wish to work in India must obtain a Residential Permit from the Foreigners Regional Registration Office (FRRO) that are located in all major cities, or, in the case of smaller cities, from the principal police station.

A foreign national, holding a visa (other than a tourist visa) valid for a period exceeding 180 days, is required to be registered with the FRRO within 15 days of arrival in India. Change of purpose or type of visa is a not permitted. Further, visa other than employment, student and entry are normally not considered for extension.

The transfer of residence scheme applies to foreign nationals visiting India for long durations. Under this scheme, foreign nationals can import certain personal effects without paying customs duty. A bank guarantee has to be provided for this purpose, which is returnable after the individual has stayed in India for a year. To avail of this scheme, the goods have to be shipped within two months before the entry into India or one month after entry into India. The goods brought into India under the transfer of residence scheme have to be owned by the importer or his family for at least one year.

(ii). Setting up of a company

The principal forms of business organisation in India are:

Companies – both public and private

Partnerships

Sole proprietorships

Companies incorporated in India and branches of foreign corporations are regulated by the Companies Act, 1956 (the Act). The Act, which has been enacted to oversee the functioning of companies in India, draws heavily from the United Kingdom’s Companies Acts and although similar, is more comprehensive. The Registrar of Companies (ROC) and the Company Law Board (CLB), both working under the Department of Company Affairs, ensure compliance with the Act.

Types of Companies

A company can be a public or a private company and could have limited or unlimited liability. A company can be limited by shares or by guarantee. In the former, the personal liability of members is limited to the amount unpaid on their shares while in the latter, the personal liability is limited by a pre-decided nominated amount. For a company with unlimited liability, the liability of its members is unlimited.

Apart from statutory government owned concerns, the most prevalent form of large business enterprises is a company incorporated with limited liability. Companies limited by guarantee and unlimited companies are relatively uncommon.

(i) Private Companies

A private company incorporated under the Act has the following characteristics:

The right to transfer shares is restricted.

The maximum number of its shareholders is limited to 50 (excluding employees).

No offer can be made to the public to subscribe to its shares and debentures.

Private companies are relatively less regulated than public companies as they deal with the relatively smaller amounts of public money. A private company is deemed to be a public company in the following situations:

When 25 percent or more of the private company’s paid-up capital is held by one or more public company.

The private company holds 25 percent or more of the paid-up share capital of a public company.

The private company accepts or renews deposits from the public.

The private company’s average annual turnover exceeds Rs. 250 million during a period of 3 consecutive financial years.

(ii) Public Companies

A public company is defined as one which is not a private company. In other words, a public company is one on which the above restrictions do not apply. Regarding the necessary procedures to be followed for registering the company, a flow chart presents the summary of the steps involved in formation of a company with Registrar of Companies.

(iii) Foreign Companies

Foreign investors can enter into the business in India either as a foreign company in the form of a liaison office/representative office, a project office and a branch office by registering themselves with Registrar of Companies (ROC), New Delhi within 30 days of setting up a place of business in India or as an Indian company in the form of a Joint Venture and wholly owned subsidiary. For opening of the foreign company specific approval of Reserve Bank of India is also required.

For starting a new project, a number of approvals/clearances are required from different authorities such as Pollution Control Board, Chief Inspector of Factories, Electricity Board, Municipal Corporations, etc.

The Parliament has enacted the Foreign Exchange Management Act, 1999 to replace the Foreign Exchange Regulation Act, 1973. This Act came into force on the 1st day of June 2000. The object of the Act is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.

This Act extends to the whole of India and will also apply to all branches, offices and agencies outside India owned or controlled by a person resident in India. It will also be applicable to any contravention committed outside India by any person to whom this Act is applicable.

Since the onset of liberalization in the country, tax structure of the country is also being rationalized keeping in view the national priorities and practices followed in other countries. Foreign nationals working in India are generally taxed only on their Indian income. Income received from sources outside India is not taxable unless it is received in India. The Indian tax laws provide for exemption of tax on certain kinds of income earned for services rendered in India. Further, foreign nationals have the option of being taxed under the tax treaties that India may have signed with their country of residence.Remuneration for work done in India is taxable irrespective of the place of receipt. Remuneration includes salaries and wages, pensions, fees, commissions, profits in lieu of or in addition to salary, advance salary and perquisites. Taxable payments include all allowances and tax equalisation payments unless specifically excluded. The stock options granted by the employer are taxable as capital gains at the time of sale of shares acquired due to exercise of options.

A foreign national may open bank accounts in India and receive funds from abroad. A foreign national is allowed to repatriate 75 percent of his net after-tax earnings after his employment is approved by the government and the exchange control authorities. If employment is for a short duration, such approvals are not necessary, provided the amount of remittance is within approved limits.

Under the Constitution of India, Labour is a subject in the Concurrent List where both the Central & State Governments are competent to enact legislation subject to certain matters being reserved for the Centre. Some of the important Labour Acts, which are applicable for carrying out business in India are:

India is a signatory to the agreement concluding the Uruguay Round of GATT negotiations and establishing the World Trade Organisation (WTO). This Agreement, inter-alia, contains an Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), which came into force from 1st January 1995. It lays down minimum standards for protection and enforcement of Intellectual Property Rights in member countries, which are required to promote effective and adequate protection of Intellectual Property Rights with a view to reducing distortions and impediments to international trade. The obligations under the TRIPS Agreement relate to provision of minimum standards of protection within the member country’s legal systems and practices.

As regards the status of various Intellectual Property laws in India and standards in respect of various areas of intellectual property, a law on Trade Marks has been passed by Parliament and notified in the gazette on 30.12.1999. This law repeals and replaces the earlier Trade & Merchandise Act, 1958. A new law for the protection of Geographical Indications, viz., the Geographical Indications of Goods (Registration and the Protection) Act, 1999 has also been passed by the Parliament and notified on 30.12.1999. A law called the Designs Act,2000 relating to Industrial Designs which repeals and replaces the earliar Designs Act, 1911 has also been passed by Parliament in its Budget Session, 2000. The Act has been brought into force from 11.05.2001. A Bill on Patents to amend the Patents Act, 1970 was introduced in Rajya Sabha on 20.12.1999 and the Bill was passed by Parliament on 14.05.2002.

India is a federal country consisting of States and Union Territories. States are also partners in the economic reforms being undertaken in the country. Most of the States are making serious efforts for simplifying the rules and procedures for setting up and operating the industrial units. Single Window System is now in existence in most of the States for granting approval for setting up industrial units. Moreover, with a view to attract foreign investors in their states, many of them are offering incentive packages in the form of various tax concessions, capital and interest subsidies, reduced power tariff, etc.

The specific website addresses containing the incentive packages offered by various states/UTs are given in the List.

Government of India has set up Foreign Investment Implementation Authority (FIIA) to facilitate quick translation of Foreign Direct Investment (FDI) approvals into implementation by providing a pro-active one stop after care service to foreign investors, help them obtain necessary approvals and by sorting their operational problems. FIIA is assisted by Fast Track Committee (FTC), which have been established in 30 Ministries/Departments of Government of India for monitoring and resolution of difficulties for sector specific projects.

Senior officers of the Department have been designated Nodal Officers for specific states for follow up of FDI cases and to bring to notice of FIIA any difficulties in implementation. In case of any difficulties, nodal officers can be contacted.